The year 2012 began with significant political unrest in Australia amid speculation that Foreign Minister Kevin Rudd would seek to challenge Prime Minister Julia Gillard for that office. Rudd—whom Gillard had replaced as prime minister after an internal Labor Party coup in 2010—saw an opportunity to regain the top job after a series of polls suggested that Gillard and her government were deeply unpopular. In late February Rudd resigned his cabinet post and accused Gillard of lacking confidence in him. Gillard responded by holding a party leadership ballot on February 27. Although he enjoyed far more public support at the time, Rudd’s status within the party was lower, and Gillard retained her position as party leader by a vote of 71 to 31.

Australian Prime Minister Julia Gillard (centre) walks through the halls of the Parliament House in …

Alan Porritt/AP

In the first half of the year, Gillard came under sustained attack by her political opposition, the Liberal-National coalition, over the looming July l implementation of a carbon-emission tax. Coalition leader Tony Abbott portrayed the tax as an unnecessary imposition on Australian families and promised to repeal it if he won the general election scheduled for 2013.

A major political issue was the growing number of people traveling to Australia by boat to seek asylum. By the end of July, the number of such unauthorized arrivals had already exceeded the 2010 full-year record of 6,555. The government, under fire for failing to control the country’s borders, revived the policy of the John Howard government of the early to mid-2000s, under which asylum seekers were sent to Nauru and Papua New Guinea’s Manus Island for processing. Human rights and refugee-advocacy groups criticized the practice as a breach of Australia’s international legal and humanitarian obligations. Further, the reinstatement of the policy failed to slow the flow of asylum seekers or defuse the controversy. The Liberal-National coalition pledged that were it to win the 2013 election, it would implement a policy of turning asylum seekers’ boats back to their ports of origin.

Gillard’s political fortunes revived toward the end of the year as the carbon tax took effect without the feared public backlash. She also won international attention and support from women in October for her attack in Parliament on Abbott for his alleged habitual misogyny, although Abbott strongly denied the charge.

The Economy

The economy continued to be dominated by the mining boom, driven by Chinese demand for raw materials. As the year progressed, however, demand from China weakened along with its economy, triggering concerns about how Australia would cope with a slowdown in its most important sector. Even with the modest downturn in mining, Australia once again experienced a so-called two-speed economy in 2012, with economic and jobs growth in the mineral-rich states of Western Australia and Queensland exceeding those of the nonmining states.

Because of the generally sluggish economy, government revenues fell more than expected, and the government cut services and benefits in an effort to fulfill its promise to return the federal budget to surplus in 2012–13. GDP grew at an annual rate of 3.7%, which led the central bank to cut interest rates to encourage consumer spending. Residential housing prices fell for the first time after almost a decade of growth.

Foreign Affairs

One of the dominant foreign-policy debates in Australia in 2012 was how the country should manage its relationships with its largest trading partner, China, and its closest military ally, the U.S., in a time of growing regional competition between the superpowers. While welcoming Chinese investment, the government strengthened military ties with the U.S., allowing U.S. Marines to train in Darwin and approving more visits by American naval ships and submarines.

In October Australia won a seat on the UN Security Council for the 2013–15 term. Foreign Minister Bob Carr described the election as a “big, juicy, decisive win” and a sign of Australia’s good international standing. He promised that Australia would take an active role in the council and would “have its own voice” on matters of global concern.

Australia’s involvement in the international military coalition in Afghanistan continued to be unpopular at home, and a majority of Australians supported early withdrawal of the 1,550 Australian troops serving there. Through 2012, 39 Australian soldiers had been killed during Australia’s decadelong mission in that country. The government brought forward its time frame for withdrawal, saying that it expected most troops to be back home by the end of 2013.

In October the government released a blueprint for closer cooperation with Asia. The document included long-term plans for better language training, closer trade and investment links, and a larger diplomatic presence across the region.

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